After eventful 2005, operators can expect 2006 to be 'Business as usual'

Published
6:00 pm CST, Saturday, February 18, 2006

By Mella McEwen

Oil Editor

By Mella McEwen

Oil Editor

Midland Reporter-Telegram

Permian Basin operators entered 2006 after a year that saw oil and natural gas prices reach record highs, spurring a surge in activity: Demand grew for drilling rigs, well servicing rigs, even the gathering of seismic data.

For 2006, "I think we'll keep going on as we are," said Morris Burns, executive vice president of the Permian Basin Petroleum Association. "I don't see anything on the horizon that will create a drastic change. Barring another Hurricane Katrina, it should be business as usual."

There is, he said, nothing on the horizon that would impact commodity prices "other than a natural disaster or a war. This is the first time in history oil prices have risen because of supply and demand rather than by artificial means."

Burns observed that those high prices have helped bring even more crude oil and natural gas to the surface.

"There's a lot online to bring that oil in now that wasn't economic with $20 oil," he said.

He added that operators are as active as they are able to be, given the long wait for rigs, equipment and workers.

His comment is supported by comments from operators responding to the Outlook 2006 survey. Most indicated that difficulty in scheduling drilling or workover rigs was having a negative impact on their activity plans.

Operators have been saying in the last year that rising commodity prices and demand have led to what they call service inflation, a phenomenon they view with growing concern.

Eastland Oil pointed out that rising service costs result in less to spend on exploration and development.

Last year's record commodity prices, especially in the aftermath of Hurricanes Katrina and Rita that damaged portions of the nation's Gulf Coast oil and gas infrastructure - refineries and producing platforms - also brought attention from elected officials, who alternately accused the industry of price-gouging and called on the industry to spend significant portions of its record-setting profits on helping low-income Americans cope with high heating and fuel bills. Those high prices also stirred debate on whether or not the world's oil production has peaked and what the next sources of energy should be.

In his recent State of the Union address, President Bush stated that America is addicted to oil, which often comes from unstable parts of the world.

That comment, said Barry Russell, president of the Independent Petroleum Association of America, in a statement responding to the president's comments, is correct.

"But it is equally important to recognize two other significant facts. First, energy is essential to a strong and growing economy, and for the foreseeable future, oil and natural gas will provide over 65 percent of that energy. Second, many alternative fuel options depend on petroleum or natural gas for their most effective development; hydrogen is a good example."

"Consequently," he continued, "while the President's proposals to seek new research and development for alternative technologies are valuable steps, it is equally important to assure that the nation maximizes its domestic oil and natural gas production. In part, this means that federal resource areas, including offshore resources, need to be available to diminish reliance on unstable energy sources. This also means that federal research and development needs to be directed toward improving development of domestic oil and natural gas resources at the same time that new energy sources are being developed.

"Additionally, the President's call to develop the math, science and engineering skills of the nation and to encourage more Americans to move into these professions reflects a keenly-felt problem facing domestic oil and natural gas producers as they cope with an aging workforce. Part of the challenge to produce these technological professionals is a strong educational system. In turn, the role of research and development funding to universities is a key link to meeting that challenge."

While response was mixed among respondents to the 2006 Outlook survey on their willingness to invest in alternative energy sources, Stephanie Sparkman, executive director of the West Texas Energy Technology Initiative insists it is something the Permian Basin can and is taking to the bank.

Last month, as she hosted a "Fueling the Future Forum" illustrating the various energy-related pursuits throughout the Permian Basin, from continued oil and gas production throughout the region to wind energy, geothermal energy to the proposed High Temperature Test and Teaching Reactor sought for Andrews County.

"There have been people who laughed at me for being adamant West Texas is the energy epicenter of the U.S., but that is a fact we can take to the bank and are taking to the bank," she said during the forum.